By Cathal Gormley. Cathal Gormley is a second-year BCL student at University College Dublin. He was selected as the winner of UCD Law Review’s annual case note competition for his work on McCool Controls and Engineering Ltd v Honeywell Controls Systems Ltd. In his analysis, Cathal explores the impact of this landmark decision on the constitutional right of access to the courts for non-lawyers.
Introduction
This case note will analyse the recent Supreme Court decision in McCool that an assignee of a company’s interest in proceedings may be permitted to pursue an action in lieu of the company.[1] The long-standing rule in Battle[2] ensures that a limited company must be represented by a lawyer in legal proceedings, and I will examine whether this decision has undermined the rule. The decision may give rise to potential exploitation by companies aiming to evade the consequences of incorporation. Therefore, I will argue for a thorough review of the exceptions to the rule in Battle.
Facts
In 2005, McCool Controls and Engineering Limited (the ‘Company’) initiated legal proceedings alleging that Honeywell Control Systems Limited (‘Honeywell’) had denied them their contractual right to take part in a lucrative project, amounting to damages of approximately €11 million.[3] As legal costs rose, the Company assigned its interest in the proceedings to its managing director, Eugene McCool (the ‘appellant’), for €1.[4] Honeywell successfully appealed this, on the basis that it circumvented the Battle rule.[5] After an unsuccessful appeal to the Court of Appeal,[6] the Supreme Court granted a hearing, considering it a matter of public importance concerning the constitutional right of access to the courts.[7]
Decision
A five-judge court, ruling by four-to-one, held that an assignee of a company’s interest in litigation may, in principle, be permitted to pursue the action by being substituted as plaintiff in lieu of that company, irrespective of whether the purpose of the assignment is to avoid the rule in Battle.[8]
The Supreme Court first addressed the validity of the assignment. The court held that the validity is determined by section 28 (6) of the Supreme Court of Judicature Act (Ireland) 1877, with Waldron v Herring[9] setting out the conditions to be satisfied. In his lead judgement, Mr Justice Woulfe held that the intention or purpose of the assignment is not a criterion for section 28 (6).[10]
Mr Justice Noonan in the High Court had ruled that the assignment was entered into for the sole purpose of bypassing this rule and was therefore an abuse of process.[11] In the present case, the appellant argued that the rule in Battle only applies where an individual seeks to represent the company as a non-party and that an individual seeking to be substituted in place of the company is “markedly different”.[12] The majority agreed with the appellant holding that an order for substitution made following an assignment has the effect of disengaging the rule in Battle, as the Company is no longer a party to the proceedings.[13]
Analysis
- The Constitutional Right of Access to the Courts
This decision has emphasised the judiciary’s commitment to facilitating fair and efficient access to justice. Small limited companies often have difficulty accessing funding for litigation, and the rule in Battle has been criticised in that regard.[14] Larger companies, that can afford the financial burden of drawn-out legal proceedings, can exploit this rule. Therefore, it may be prudent for the legislature to conduct a comprehensive review of situations where non-lawyers are permitted to represent companies in court proceedings.
- The Administration of Justice Problem
While it is acknowledged that the rule in Battle can have the effect of restricting an impecunious company’s right of access to the courts, it is deemed to be a proportionate restriction.[15] Mr Justice Murray outlines that the rule in Battle aims to ensure that justice is administered appropriately.[16] While limited liability is an enormous benefit to a limited company, it comes with a price, and part of the price is that a company must be represented by lawyers.[17] Owing to lawyers’ professional obligations, legal proceedings are best conducted through them.[18] It may seem that this decision has undermined the rule in Battle, however, as outlined by Mr Justice Hogan, there are safeguards in place that ensure justice is administered appropriately, regardless of whether the company is represented by a lawyer or non-lawyer.[19]
- Avoiding the Consequences of Incorporation
The implications of the majority decision are far broader than merely allowing a director to speak on the company’s behalf. Incorporation involves creating a legal person separate and distinct from its members,[20] and the requirement of legal representation is a crucial aspect of this separation. Assigning the right to litigate to a director would grant directors the same rights as individuals representing themselves in court, removing protections regarding costs and potentially shielding company assets from the consequences of a negative court ruling.[21] If a company decides to avoid the financial implications of litigation, the company could protect their assets by simply assigning the case to a director, undermining the principle of incorporation. Instead, Charleton J. suggests that such an assignment should only be possible where the company has been taken into receivership or liquidation, where the obligation to achieve value for assets is vested in an independent person.[22]
- The Peppercorn Consideration
The right to sue for the breach of contract, which is an asset of the Company, was transferred to the appellant for €1, significantly lower than its potential value of €11 million. As outlined by Charleton J., directors are prohibited from transferring or selling the company’s assets for a peppercorn consideration.[23] Even if there’s an agreement for the assignee to reinvest potential damages back into the company, it doesn’t change the fact that the company relinquishes control over a valuable asset while evading potential legal costs and security obligations.
Conclusion
The Supreme Court decision has clarified that a company can assign its interest in litigation. The decision somewhat limits the scope of the rule in Battle by holding that the rule only applies where an individual seeks to represent the company as a non-party. It remains to be seen whether the courts will permit other circumstances where a company representative will be allowed to represent the company in proceedings. The courts will also have to be mindful of the danger that this decision might be exploited by companies seeking to protect their assets.
[1] McCool Controls and Engineering Ltd v Honeywell Controls Systems Ltd [2024] IESC 5.
[2] Battle v Irish Art Promotion Centre Ltd [1968] IR 252.
[3] McCool (n 1) [3] (Woulfe J).
[4] ibid [1] (Woulfe J).
[5] McCool v Honeywell Control Systems Ltd [2018] IEHC 167; [2019] IEHC 695.
[6] McCool Controls and Engineering Ltd v Honeywell Controls Systems Ltd [2022] IECA 56.
[7] McCool (n 1) [17] (Woulfe J), [6] (Murray J).
[8] ibid [77] (Woulfe J), [40] (Murray J).
[9] Waldron v Herring [2013] IEHC 294.
[10] McCool (n 1) [50] (Woulfe J).
[11] McCool (n 5) [30] (Noonan J).
[12] McCool (n 1) [24].
[13] ibid [64] (Woulfe J).
[14] Allied Irish Bank Plc v Aqua Fresh Fish Ltd [2018] IESC 49 [32].
[15] McCool (n 1) [68] (Woulfe J).
[16] ibid [34] (Murray J).
[17] Radford v Freeway Classics Ltd [1994] 1 BCLC 445.
[18] Stella Coffey v Birmingham [2013] IESC 11 [29].
[19] McCool (n 1) [20] (Hogan J).
[20] Salomon v Salomon & Company Ltd [1897] AC 22 [51].
[21] McCool (n 1) [31] (Charleton J).
[22] ibid [1] (Charleton J).
[23] ibid [47] (Charleton J).
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